MARKET CONCENTRATION, DIVERSIFICATION AND FIRM PERFORMANCE IN CASE OF INDIAN CHEMICAL INDUSTRY

Shaurav, Kumar and Rath, Badri Narayan (2019) MARKET CONCENTRATION, DIVERSIFICATION AND FIRM PERFORMANCE IN CASE OF INDIAN CHEMICAL INDUSTRY. Masters thesis, Indian institute of technology Hyderabad.

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Abstract

The association between market concentration and diversification on firm’s performance is well recognised and has been extensively researched. Although, the existence of theoretical and empirical studies is at its advanced level, still, there is ambiguity on the relationship between firm’s diversification and market concentration with that of the performance. The existing studies cover mostly the association between diversification and performance or market concentration and performance individually, but no study focuses on reviewing these organisational strategies and their effect on the firm’s performance. The present study examines the effect of market concentration and diversification on firms’ performance for Indian chemical industry. The study measures performance in terms of productivity and profitability. First, this study measures the total factor productivity using Levinsohn-Petrin methodology. The returns on assets (ROA) are most commonly used for financial performance measure as profitability. Similarly, the Herfindahl-Hirschman Index (HHI) is used for measuring market concentration, and Entropy Index is considered for measuring of diversification. The results indicate a positive link between market concentration and both the measures of performance. Moreover, diversification measure shows a negative impact on firms’ productivity and positive impacts on profitability. The study also reveals that market concentration outperformed diversification strategies in term of its impact on the firms’ performance.

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